FOREX-Euro dips vs dlr, investors still wary on Spain

* Euro pressured by Sarkozy comments on exchange rate

* Market bracing for Spanish bond auction on Thursday

* Yen falters as Japan trade deficit, easing in focus

By Nia Williams

LONDON, April 18 The euro fell against the
dollar on Wednesday after French President Nicolas Sarkozy said
a strong euro hurt exporters, and it looked set to stay
pressured with investors still wary of Spain's fiscal problems
and wider euro zone debt contagion.

Traders cited selling by Swiss investors after Sarkozy said
the euro's exchange rate should be up for discussion with the
European Central Bank.

The euro edged lower throughout the European session
to hit a session low of $1.3076. The move erased modest gains
made the previous day on upbeat earnings from U.S. companies,
decent demand at a Spanish bill auction and a
better-than-expected German ZEW sentiment survey.

Market players said the euro could post further losses ahead
of a Spanish bond auction on Thursday, and poor demand and high
yields at the auction would aggravate concerns about Spain's
fragile fiscal position.

"The euro is in a very narrow trading range as we wait for
tomorrow. There is a lot of uncertainty in the market and people
will speculate on a bad outcome, which should be a burden for
risky assets," said Lutz Karpowitz, currency strategist at
Commerzbank.

Comments from ECB policymaker Jens Weidmann that Spain
should not expect the central bank to tackle rising debt yields
by buying Spanish bonds also weighed on the common currency,
although strategists said the impact was limited as Weidmann's
opposition to the policy was well-known.

There was little reaction in currency markets to Germany
selling two-year bonds at a record low yield.

The euro has traded roughly between $1.30 and $1.35 since
January, and has struggled to rise above $1.32 since early
April. CitiFX Wire said in a note that its traders were looking
to buy the range-bound currency on dips.

"It's a sideways movement because we do not know exactly
what happens with QE3 in the U.S. and on the other hand we have
the European debt crisis which is not solved. It's very
difficult for investors to take a stance," said Karpowitz.

Investors are still looking for clues as to whether the U.S.
Federal Reserve will opt for another round of asset purchasing
this year, known as QE3. More loose monetary policy aimed at
stimulating growth would be expected to weigh on the dollar.

YEN FALTERS

In recent weeks there has been a growing perception in the
market that the Fed may not hint at further easing at its April
24-25 meeting, in contrast to expectations the Bank of Japan
will take fresh easing steps on April 27.

Bank of Japan deputy governor Kiyohiko Nishimura said on
Wednesday that the central bank was ready to ease policy further
if necessary to help Japan's economy recover.

Those expectations weighed on the yen, which also came under
pressure ahead of Japanese trade data on Thursday that is
forecast to show Tokyo's trade balance swung to deficit in March
after a small surplus in February.

The dollar rose 0.7 percent against the yen to 81.43
yen. The euro traded up 0.5 percent on the day at
106.61 yen, rising clear of Monday's low of 104.62 yen.

Some analysts said the market was pricing in further easing
too aggressively, opening the door to a rebound in the yen.

"Even if they get 5 trillion yen extra in asset purchases it
probably won't be enough because the market is expecting so
much. We recommend holding dollar/yen shorts going into the
meeting," said Geoff Kendrick, currency strategist at Nomura.

Sterling rallied against the euro and dollar after minutes
showed the Bank of England was concerned about high inflation
persisting into the medium-term and one policymaker dropped his
long-standing call for more stimulus.

The euro fell 0.7 percent against the pound to
81.87 pence, its lowest level in 19 months and below reported
options barriers at 82 pence.

Meanwhile, Swedish crown rose to a two-week high against the
euro of 8.8350 crowns after the Riksbank left rates
on hold and said it expected to keep them there for at least a
year.

FRANKFURT/LONDON, Dec 9 The European Central
Bank hopes its decision to confront struggling Italian bank
Monte dei Paschi at last will draw a line under a multi-year
crisis that has risked tarnishing its reputation as a credible
supervisor.

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